Does the Ind AS moderate the relationship between capital structure and firm performance?

What is it about?

In line with the wide implementation of IFRS around the globe, the significant shift in the Indian accounting system appertained to the Ind AS is expected to have a substantial impact on the firm-level information environment. Nevertheless, the question of whether the adoption of such standards moderates the relationship between leverage and firm performance remains unanswered. In this backdrop, we aim to close this research gap employing 3120 firm-year observations from 401 Indian non-financial firms for a period from 2013 to 2022. Notably, we found that the leverage among Indian firms discourages profitability. Further, the adoption of Ind AS negatively moderates the leverage and firm performance association. The findings suggest that the enhanced transparency and the firm's reporting quality dissuade risk-averse investors from investing in highly levered companies. As a result, investors avoid risky investments, and firms must strive to foster their trust and motivation. The conclusion of the present research draws significant implications for management and policymakers while also contributing to the ongoing debate on capital structure and firm performance.

Featured Image

Photo by Towfiqu barbhuiya on Unsplash

Photo by Towfiqu barbhuiya on Unsplash

Why is it important?

The CS and its impact on the performance of firms has become a major concern in developing economies, specifically after the adoption of global accounting standards i.e., IFRS. The adoption of Ind AS led to an increase in the transparency of financial statements while impacting the leverage and other ratios of the firms. On this account, the present study examines the moderating role of Ind AS on the stated relationship.

Perspectives